Sunday, August 31, 2008

Internet Traffic Begins to Bypass the U.S. By JOHN MARKOFFPublished: August 29, 2008

SAN FRANCISCO — The era of the American Internet is ending. Invented by American computer scientists during the 1970s, the Internet has been embraced around the globe. During the network’s first three decades, most Internet traffic flowed through the United States. In many cases, data sent between two locations within a given country also passed through the United States.

Engineers who help run the Internet said that it would have been impossible for the United States to maintain its hegemony over the long run because of the very nature of the Internet; it has no central point of control.

And now, the balance of power is shifting. Data is increasingly flowing around the United States, which may have intelligence — and conceivably military — consequences.

American intelligence officials have warned about this shift. “Because of the nature of global telecommunications, we are playing with a tremendous home-field advantage, and we need to exploit that edge,” Michael V. Hayden, the director of the Central Intelligence Agency, testified before the Senate Judiciary Committee in 2006. “We also need to protect that edge, and we need to protect those who provide it to us.”

Indeed, Internet industry executives and government officials have acknowledged that Internet traffic passing through the switching equipment of companies based in the United States has proved a distinct advantage for American intelligence agencies. In December 2005, The New York Times reported that the National Security Agency had established a program with the cooperation of American telecommunications firms that included the interception of foreign Internet communications.

Some Internet technologists and privacy advocates say those actions and other government policies may be hastening the shift in Canadian and European traffic away from the United States.

“Since passage of the Patriot Act, many companies based outside of the United States have been reluctant to store client information in the U.S.,” said Marc Rotenberg, executive director of the Electronic Privacy Information Center in Washington. “There is an ongoing concern that U.S. intelligence agencies will gather this information without legal process. There is particular sensitivity about access to financial information as well as communications and Internet traffic that goes through U.S. switches.”

But economics also plays a role. Almost all nations see data networks as essential to economic development. “It’s no different than any other infrastructure that a country needs,” said K C Claffy, a research scientist at the Cooperative Association for Internet Data Analysis in San Diego. “You wouldn’t want someone owning your roads either.”

Indeed, more countries are becoming aware of how their dependence on other countries for their Internet traffic makes them vulnerable. Because of tariffs, pricing anomalies and even corporate cultures, Internet providers will often not exchange data with their local competitors. They prefer instead to send and receive traffic with larger international Internet service providers.

This leads to odd routing arrangements, referred to as tromboning, in which traffic between two cites in one country will flow through other nations. In January, when a cable was cut in the Mediterranean, Egyptian Internet traffic was nearly paralyzed because it was not being shared by local I.S.P.’s but instead was routed through European operators.

The issue was driven home this month when hackers attacked and immobilized several Georgian government Web sites during the country’s fighting with Russia. Most of Georgia’s access to the global network flowed through Russia and Turkey. A third route through an undersea cable linking Georgia to Bulgaria is scheduled for completion in September.

Ms. Claffy said that the shift away from the United States was not limited to developing countries. The Japanese “are on a rampage to build out across India and China so they have alternative routes and so they don’t have to route through the U.S.”

Andrew M. Odlyzko, a professor at the University of Minnesota who tracks the growth of the global Internet, added, “We discovered the Internet, but we couldn’t keep it a secret.” While the United States carried 70 percent of the world’s Internet traffic a decade ago, he estimates that portion has fallen to about 25 percent.

Internet technologists say that the global data network that was once a competitive advantage for the United States is now increasingly outside the control of American companies. They decided not to invest in lower-cost optical fiber lines, which have rapidly become a commodity business.

That lack of investment mirrors a pattern that has taken place elsewhere in the high-technology industry, from semiconductors to personal computers.

Brazil's national intelligence agency will investigate accusations that its agents tapped the phones of top government officials.

The Brazilian Intelligence Agency, known by its Portuguese acronym ABIN, said in a statement it will also ask the Justice Ministry and other officials to independently look into the case.

The news magazine Veja reported in its latest edition that ABIN agents not only tapped the phones of Gilmar Mendes, the Supreme Court justice, but also the close associates of President Luiz Inacio Lula da Silva and members of Congress.

Veja reported it received a packet of information from an ABIN agent it didn't name that contained evidence the agency routinely carried out illegal wiretaps.

President of Brazil's Senate Garibaldi Alves, which was another alleged target of the wiretaps, said he will speak with Mendes on Monday to organize a joint response.

Alves also said on Saturday that "President Lula will have to take action.'' He said that the president "has a decisive role in avoiding any possibility that his core team is supporting and promoting this.''

The Veja article made clear that none of its sources were accusing Silva of having any knowledge of wiretapping.

It was not clear why the taps would have been carried out, though some local media speculate it could be connected to October municipal elections that are seen as a key test of the popularity of Silva's Workers' Party ahead of the 2010 presidential race.

Mendes told Veja that any wiretapping would be a blow to democracy.

"To secretly record the telephone calls of the president of the supreme court is something from a totalitarian regime,'' he was quoted as saying.

Mendes said he didn't think the government ordered any wiretaps, but he would ask Silva to investigate and punish those responsible.

RIO DE JANEIRO, Brazil (AP) — Brazil will spend US$160 million by the end of next year on the development of a nuclear-propelled submarine to protect the oil reserves found recently off its coast, the defense minister said Friday.

The vessel — which officials hope to be complete by 2020 — would be the first nuclear-propelled submarine in Latin America. Brazil does not have nuclear weapons.

The submarine is the highlight of the Brazil's new defense plan — to be made public on Sept. 7.

Brazil is believed to be preparing to spend US$3.5 billion by the end of 2010 to upgrade its weapon systems, according to reports in the local media.

Defense Minister Nelson Jobim, speaking Friday in Rio de Janeiro, said the new defense plan includes provisions for a massive technology transfer from France — essential if Brazil hopes to have a nuclear submarine.

In February, French President Nicolas Sarkozy said France would transfer technology to Brazil for construction of the diesel-powered Scorpene attack submarine. It will serve as a model for a nuclear sub, Brazilian officials have said.

Brazil's strategic affairs minister said this week that Brazil is planning a "significant increase" in defense spending.

Roberto Mangabeira Unger told reporters Brazil wants to create a rapid deployment force and build a state-of-the-art weapons industry — one that would become an active exporter of arms.

Unger did not detail how big of a jump there would be in the defense budget, which now stands at 1.5 percent of gross domestic product. Brazil's GDP was about US$1.5 trillion last year.

But he said Brazil's military must become more agile to protect the country's long coastline and vast, porous borders in the Amazon, along with its oil reserves.

Brazil has discussed building a nuclear submarine for decades, and began a formal program in 1979. President Luiz Inacio Lula da Silva last year announced US$540 million in new funding for the program and for existing uranium enrichment efforts.

Bush quietly seeks to make war powers permanent, by declaring indefinite state of warJohn ByrnePublished: Saturday August 30, 2008

As the nation focuses on Sen. John McCain's choice of running mate, President Bush has quietly moved to expand the reach of presidential power by ensuring that America remains in a state of permanent war.

Buried in a recent proposal by the Administration is a sentence that has received scant attention -- and was buried itself in the very newspaper that exposed it Saturday. It is an affirmation that the United States remains at war with al Qaeda, the Taliban and "associated organizations."

Part of a proposal for Guantanamo Bay legal detainees, the provision before Congress seeks to “acknowledge again and explicitly that this nation remains engaged in an armed conflict with Al Qaeda, the Taliban, and associated organizations, who have already proclaimed themselves at war with us and who are dedicated to the slaughter of Americans.”

The New York Times' page 8 placement of the article in its Saturday edition seems to downplay its importance. Such a re-affirmation of war carries broad legal implications that could imperil Americans' civil liberties and the rights of foreign nationals for decades to come.

It was under the guise of war that President Bush claimed a legal mandate for his warrantless wiretapping program, giving the National Security Agency power to intercept calls Americans made abroad. More of this program has emerged in recent years, and it includes the surveillance of Americans' information and exchanges online.

"War powers" have also given President Bush cover to hold Americans without habeas corpus -- detainment without explanation or charge. Jose Padilla, a Chicago resident arrested in 2002, was held without trial for five years before being convicted of conspiring to kill individuals abroad and provide support for terrorism.

But his arrest was made with proclamations that Padilla had plans to build a "dirty bomb." He was never convicted of this charge. Padilla's legal team also claimed that during his time in military custody -- the four years he was held without charge -- he was tortured with sensory deprivation, sleep deprivation, forced stress positions and injected with drugs.

Times reporter Eric Lichtblau notes that the measure is the latest step that the Administration has taken to "make permanent" key aspects of its "long war" against terrorism. Congress recently passed a much-maligned bill giving telecommunications companies retroactive immunity for their participation in what constitutional experts see as an illegal or borderline-illegal surveillance program, and is considering efforts to give the FBI more power in their investigative techniques.

"It is uncertain whether Congress will take the administration up on its request," Lichtblau writes. "Some Republicans have already embraced the idea, with Representative Lamar Smith of Texas, the ranking Republican on the Judiciary Committee, introducing a measure almost identical to the administration’s proposal. 'Since 9/11,' Mr. Smith said, 'we have been at war with an unconventional enemy whose primary goal is to kill innocent Americans.'"

If enough Republicans come aboard, Democrats may struggle to defeat the provision. Despite holding majorities in the House and Senate, they have failed to beat back some of President Bush's purported "security" measures, such as the telecom immunity bill.

Bush's open-ended permanent war language worries his critics. They say it could provide indefinite, if hazy, legal justification for any number of activities -- including detention of terrorists suspects at bases like Guantanamo Bay (where for years the Administration would not even release the names of those being held), and the NSA's warantless wiretapping program.

Lichtblau co-wrote the Times article revealing the Administration's eavesdropping program along with fellow reporter James Risen.

He notes that Bush's language "recalls a resolution, known as the Authorization for Use of Military Force, passed by Congress on Sept. 14, 2001... [which] authorized the president to 'use all necessary and appropriate force' against those responsible for the Sept. 11 attacks to prevent future strikes. That authorization, still in effect, was initially viewed by many members of Congress who voted for it as the go-ahead for the administration to invade Afghanistan and overthrow the Taliban, which had given sanctuary to Mr. bin Laden."

"But the military authorization became the secret legal basis for some of the administration’s most controversial legal tactics, including the wiretapping program, and that still gnaws at some members of Congress," he adds.

Protesters here in Minneapolis have been targeted by a series of highly intimidating, sweeping police raids across the city, involving teams of 25-30 officers in riot gear, with semi-automatic weapons drawn, entering homes of those suspected of planning protests, handcuffing and forcing them to lay on the floor, while law enforcement officers searched the homes, seizing computers, journals, and political pamphlets. Last night, members of the St. Paul police department and the Ramsey County sheriff’s department handcuffed, photographed and detained dozens of people meeting at a public venue to plan a demonstration, charging them with no crime other than "fire code violations," and early this morning, the Sheriff’s department sent teams of officers into at least four Minneapolis area homes where suspected protesters were staying.

Jane Hamsher and I were at two of those homes this morning — one which had just been raided and one which was in the process of being raided. Each of the raided houses is known by neighbors as a "hippie house," where 5-10 college-aged individuals live in a communal setting, and everyone we spoke with said that there had never been any problems of any kind in those houses, that they were filled with "peaceful kids" who are politically active but entirely unthreatening and friendly. Posted below is the video of the scene, including various interviews, which convey a very clear sense of what is actually going on here.

In the house that had just been raided, those inside described how a team of roughly 25 officers had barged into their homes with masks and black swat gear, holding large semi-automatic rifles, and ordered them to lie on the floor, where they were handcuffed and ordered not to move. The officers refused to state why they were there and, until the very end, refused to show whether they had a search warrant. They were forced to remain on the floor for 45 minutes while the officers took away the laptops, computers, individual journals, and political materials kept in the house. One of the individuals renting the house, an 18-year-old woman, was extremely shaken as she and others described how the officers were deliberately making intimidating statements such as "Do you have Terminator ready?" as they lay on the floor in handcuffs. The 10 or so individuals in the house all said that though they found the experience very jarring, they still intended to protest against the GOP Convention, and several said that being subjected to raids of that sort made them more emboldened than ever to do so.

“More than 3,500 insurgents have been ‘taken off the streets of Baghdad’ by the elite British force in a series of audacious ‘Black Ops’ over the past two years,” reports Sean Rayment for the London Telegraph. “It is understood that while the majority of the terrorists were captured, several hundred, who were mainly members of the organization known as ‘al-Qa’eda in Iraq’ have been killed by the SAS.”

The assassination program in Iraq is a collaborative effort between the British SAS and the American Delta Force. It is called “Task Force Black.” General Petraeus was so impressed with the assassination effort he remarked: “They have exceptional initiative, exceptional skill, exceptional courage and, I think, exceptional savvy. I can’t say enough about how impressive they are in thinking on their feet.”

Let’s rewind. Recall the Washington Post, the CIA’s favorite newspaper, admitting that the putative leader of “al-Qaeda in Iraq,” the criminal retard Abu Musab al-Zarqawi, was little more than a Pentagon PSYOP.

“The U.S. military is conducting a propaganda campaign to magnify the role of the leader of al-Qaeda in Iraq, according to internal military documents and officers familiar with the program. The effort has raised his profile in a way that some military intelligence officials believe may have overstated his importance and helped the Bush administration tie the war to the organization responsible for the Sept. 11, 2001, attacks,” wrote Thomas E. Ricks in a front page story for the newspaper on April 10, 2006. “For the past two years, U.S. military leaders have been using Iraqi media and other outlets in Baghdad to publicize Zarqawi’s role in the insurgency. The documents explicitly list the ‘U.S. Home Audience’ as one of the targets of a broader propaganda campaign.”

As Michel Chossudovsky notes, much of this fairy tale propaganda is delivered to the corporate media by “top feeders” at the Pentagon. “Disinformation and war propaganda are an integral part of military planning. What the Washington Post fails to mention, however, is its own role in sustaining the Zarqawi legend, along with network TV, most of the printed press, and of course CNN and Fox News, not to mention a significant portion of the alternative media,” writes Chossudovsky. As we know, the Washington Post was long ago compromised by the CIA’s Operation Mockingbird, so this role is now reflexive.

US military-intelligence has created it own terrorist organizations. In turn, it has developed a cohesive multibillion dollar counterterrorism program “to go after” these terrorist organizations. To reach its foreign policy objectives, the images of terrorism in the Iraqi war theater must remain vivid in the minds of the citizens, who are constantly reminded of the terrorist threat. The Iraqi resistance movement is described as terrorists led by Zarqawi.

In other words, “al-Qaeda in Iraq” is a fabrication designed to discredit the Iraqi resistance.

Sean Rayment and the London Telegraph would have us believe the British SAS is only killing “al-Qaeda in Iraq” members. In fact, it appears they are targeting the leadership of the Iraqi resistance while capturing and imprisoning street level “terrorists,” that is to say fighters resisting occupation.

The SAS is a natural for this sort of work. It was formed during WW11 by David Stirling with the intention to operate behind enemy lines and to perform acts of sabotage and assassination. The SAS also worked against indigenous groups under the rubric of “counter insurgency” in Malaya, Oman, Borneo, and elsewhere.

“By 1969, the SAS had been sent to Northern Ireland to perform covert operations against the IRA — which included assassination,” writes David Guyatt. “Perhaps the best known incident that involved the SAS in a ‘wet operation’ was the assassination of an IRA unit in Gibraltar.”

In fact, British intelligence created much of the terrorism attributed to the IRA. Kevin Fulton (a pseudonym), the British agent who was assigned to infiltrate the IRA, writes in his book, Unsung Hero, that the he met FBI and MI5 agents and was given money to buy an infra-red device to be used to set off IRA bombs. “In New York he attended a meeting with FBI agents and British intelligence officers. There he agreed to expose IRA operatives in America to the FBI. However, the same terrorists, who were arrested months later, were first allowed to procure and send the infrared technology to the IRA. Fulton claims this technology was used in the Troubles and forms the basis for insurgent bombs in Iraq,” Enda Leahy wrote for the Sunday Times on March 19, 2006. For more on the dirty tricks of British intelligence and the SAS in particular, see my British “Pseudo-Gang” Terrorists Exposed in Basra, Global Research, September 24, 2005.

As for British involvement in creating terrorism in Iraq, recall the two SAS agents captured by the Iraqis attempting to stage terror attacks. “Iraqi security officials on [September 19, 2005] variously accused the two Britons they detained of shooting at Iraqi forces or trying to plant explosives,” the Washington Post reported. As I wrote at the time (see link above), “the next time you read or hear about crazed ‘al-Qaeda in Iraq’ terrorists blowing up children or desperate job applicants, keep in mind, according to the Iraqi Interior Ministry, the perpetrators may very well be British SAS goons who cut their teeth killing Irish citizens.”

The CIA ran likewise operations in Vietnam. As former CIA employee Ralph McGehee notes, the “U.S. and Saigon intel services maintained an active list of VC cadre marked for assassination” in the late 1960s. Dubbed Operation Phoenix, the assassination program “called for ‘neutralizing’ 1800 [alleged Viet Cong] a month.” Approximately one third of the Viet Cong targeted for arrest were summarily killed by so-called “security committees” in provincial interrogation centers outside of judicial control and funded by the CIA. More than 40,000 Vietnamese were killed under Operation Phoenix at an estimated cost of nearly $2 billion (see Ralph McGehee, CIA and Operation Phoenix in Vietnam).

The collaborative effort between the British SAS and America’s Delta Force is obviously designed to take out the leadership of the Iraqi resistance, led by a disparate and not necessarily connected combination of former Ba’athists, nationalists, Sunni and Shi’a militias. It is intended to decimate the leadership — referred to as “al-Qaeda in Iraq” terrorists in the corporate media — as the United States prepares to downsize its presence in Iraq and shift emphasis under a new administration to Afghanistan.

A nonprofit lobbying organization aimed at strengthening Israel's image in the media quietly ran ads during the Democratic National Convention in which Boulder, Colorado launches missile attacks on Denver, in an attempt to bolster support for Israeli action against Iran.

Today, The Israel Project released a survey showing that 63 percent of Americans support an Israeli "surgical" strike on Iran's purported nuclear facilities, with 55 percent supporting America's participation in such a strike. The poll, however, did not note the organization's effort to lobby those being polled.

The Boulder attack ad shows a map of Denver being hit by flaming missiles, then an image of Israel being hit by the same weapons. It then displays an image of Iran, followed by ominous missile launches, a photograph of a man with a black hood over his face, Iran's president, and a silhouetted traveler with a suitcase.

"The Time for World Leaders to Act Is Now," it concludes.

The group is also running ads during the Republican National Convention tying US support for Israel to lessening America's reliance on "Mid-East oil."

Video of an Israeli man getting into a car runs next to an American boarding a similar vehicle. The frames follow with the line, "Developing Solar, Wind & Electric Car Technology."

Both ads appear below. They are slated to run on cable news networks 1,300 times during the two conventions.

Israel remains the top recipient of US foreign aid. In February, President Bush requested Congress approve an aid budget of $20 billion, a 12 percent increase over 2007. Egypt is the second largest recipient, at about $1.5 billion. Israel has plowed US money into developing technology companies and buying US weapons, and has emerged as one of the fastest-growing players in the security and defense technology industry.

According to their website, "The Israel Project (TIP) is a nonprofit, nonpartisan educational organization headquartered in Washington, D.C. that works to strengthen Israel's image in the media. TIP is currently working in the United States, Europe and Israel."

The poll cites "a growing concern in the US of the possibility that Iran would be able to possess actual nuclear capabilities: About 87% of those polled said a nuclear Iran will pose a threat to the US and 96% believe it would be of imminent threat to Israel," YNet News writes.

90 percent of those surveyed by the project's poll said Iran would sell its nuclear weapons if it obtained them.

62 percent, however, "said they believed the world can still find a "diplomatic solution which would make Iran halt its nuclear endeavors."

'Environmental volunteers' will be encouraged to spy on their neighbours Councils are recruiting residents to report anyone who drops litter, fails to recycle their rubbish properly, or who allows their dog to foul the streets. By Lucy Cockcroft Last Updated: 3:06AM BST 31 Aug 2008

Advertisements looking for people to sign up for the unpaid "environmental volunteer" jobs have been posted across the country in recent months.

Critics said the scheme is encouraging a Big Brother society where friends and neighbours will be encouraged to "snoop" on one another.

The recruitment drive follows news that the Home Office is granting police powers to council staff and private security guards, allowing then to hand out fines for low-scale offences and ask for personal details.

Matthew Elliott, of the Taxpayers' Alliance, said: "Snooping on your neighbours to report recycling infringements sounds like something straight out of the East German Stasi's copybook.

"With council tax so high, the last thing people want to pay for is an army of busybodies peering through their net curtains at their neighbours as they put out their rubbish."

Eastleigh council, in Hampshire, has said it wants residents to "monitor local environmental quality" to combat issues involving recycling and waste.

The local authority has already employed about a dozen people who answered an advert in a council newsletter which said: "Volunteers will be involved in reporting issues in their area such as recycling, waste, fly-tipping, graffiti, dog fouling and abandoned vehicles".

And the borough of Tower Hamlets, in east London, is advertising for similar roles within its environmental department, while other councils are expected to follow suit.

The volunteers are not asked directly to spy on neighbours, but they are encouraged not to ignore tip-offs.

A spokesman for Tower Hamlets said: "These are all people who care about the environment and they will be ambassadors for their area.

"They will be there to report graffiti, abandoned vehicles and local vandalism, but not to report on other individuals."

"And they might go to an over-60s club and talk about recycling."

The Local Government Association said: "Environment volunteers care passionately about their area and want to protect it.

"They are not snoopers. They will help councils cut crime and make places cleaner, greener and safer."

David Kelly's closest female confidante on why he COULDN'T have killed himselfBy Sharon ChurcherLast updated at 4:25 PM on 31st August 2008

A female confidante of Dr David Kelly raised disturbing new questions last night over how the Ministry of Defence weapons inspector was able to kill himself.

After his body was discovered in woods near his Oxfordshire home in July 2003, a Government inquiry led by Lord Hutton ruled that he committed suicide by slashing his left wrist with a knife and taking an overdose of co-proxamol, a painkiller commonly used for arthritis.

He was said to be anguished about being named as the source of a BBC report, which alleged that Tony Blair ‘sexed up’ a dossier justifying the invasion of Iraq.

But five years after his death at 59, his close friend, American military linguist Mai Pederson, has come forward to dispute this account.

The Hutton inquiry heard that he died after making several cuts to his left wrist, which severed the ulnar artery, buried deep in the tissue on the side of the hand nearest the little finger.

An earlier coroner’s inquest was halted when the Government used an obscure law to turn the investigation over to Lord Hutton. His inquiry concluded that ‘there was no involvement by a third party’ in the scientist’s death, which was said to be caused primarily by the cut artery and hastened by the painkillers.

Ms Pederson, a US Air Force officer, met Dr Kelly when she was assigned to work in 1998 as a translator for the UN weapons inspection team in Iraq.

And she revealed in an interview with The Mail on Sunday that, in the months leading to his death, the right-handed scientist was unable to use his right hand for tasks requiring strength because of a painful injury to his right elbow.

According to Ms Pederson, when she dined with Dr Kelly at a Washington restaurant in the spring of 2003, the hand’s grip was so weak that he struggled to get a knife through a steak he had ordered.

The linguist, who counselled Dr Kelly during his conversion to the Baha’i religious faith that she follows, says he had begun to favour his left hand for even relatively minor tasks, a tendency she observed on numerous other occasions.

‘David would have had to have been a contortionist to kill himself the way they claim,’ she said.

‘I don’t know whether he was born right-handed but by the time I first met him he favoured his left hand for any task that required strength, like opening a door or carrying his briefcase.

‘When he embraced friends at the beginning and end of Baha’i meetings, it was his left arm that you felt hugging you and you could tell his right arm hurt him because he rubbed the elbow a lot.

‘I didn’t want to pry but he finally told me the reason in the spring of 2003. It was the last time I saw him before he died. He was visiting America on business and we went out to dinner.

‘He ordered steak and he was holding his knife very oddly in the palm of his right hand, with his wrist crooked, trying to cut the meat.

‘He told me that some time ago he had broken his right elbow and it was never fixed properly, so he had real problems with it. It was painful and it never regained its strength.

'I just don’t see how he could have used his right hand to cut through the nerves and tendons of his left wrist - especially as the knife he supposedly used had a dull blade.’

Ms Pederson said she believed she was familiar with the knife Dr Kelly is said to have used.

‘He always wore a Barbour jacket and he kept a knife in his pocket,’ she said. ‘It had a folding blade and I remember him telling me he couldn’t sharpen it because his right hand didn’t have the strength to hold a sharpener.

‘It would have taken him a long time to reach the artery that was severed and it would have been very painful.

‘As a scientist, David had no need to kill himself that way. I don’t understand why the British Government isn’t thoroughly investigating this. Logically, he cannot have committed suicide.’

Ms Pederson, 48, whose military duties have included intelligence assignments, has avoided the spotlight since Dr Kelly’s death. But she says she is perturbed by mounting evidence that he may have been murdered.

The Mail on Sunday revealed last week that after his disappearance, a heat-seeking search helicopter flew over the exact spot where his corpse was later discovered. Yet the thermal-imaging equipment picked up no sign of a body – which some experts say suggests he was killed elsewhere.

Moreover, a group of doctors, surgeons and anaesthetists has called for a new inquiry into his death, contending that a cut to the ulnar artery would not cause catastrophic bleeding. Little blood was found at the scene.

They also maintain that the 29 or so painkillers Dr Kelly supposedly swallowed were only one-third of the dosage normally considered as lethal.

Even more mysteriously, there were no fingerprints on the knife he allegedly wielded nor on the bottle from which he supposedly drank water to wash down the tablets.

But perhaps most key is the information that Ms Pederson provided to Thames Valley Police, who were assisting the Hutton inquiry.

When officers flew to meet her in America in August 2003, she says she told them during two days of interviews that she was baffled about how Dr Kelly could have killed himself.

‘The facts just don’t add up,’ said Ms Pederson. ‘The more I have heard about this, the more I have thought about the significance of his weak right hand. I told the police about it when they interviewed me. I said, “How could David have cut his left wrist using a dull knife with his weak right hand?”

‘They said, “It wasn’t a straight cut. It was jagged.”

‘When I heard nothing more about it, I assumed they had come to an informed decision - that it was suicide. But now, knowing all that we do, I feel it is time for a disinterested public inquiry.'

Ms Pederson has been one of the more elusive figures in the mystery of Dr Kelly’s death. There have been rumours that she might have been romantically involved with the married scientist.

However, the vivacious brunette strongly denied this in a previous interview with The Mail on Sunday, pointing out that both her religion and military rules prohibit adultery.

Ms Pederson, who is fluent in Arabic, German and French, met Dr Kelly when she was seconded to the UN team in Iraq as a translator. In the tense atmosphere, she developed a close bond with him. They had long conversations about her devout beliefs in the ecumenical teachings of the Baha’i faith, to which he converted a year later.

She recalled: ‘He was like my big brother. I was the only linguist on the team and I would work until 11 or 11.30 at night and then go for a walk to get rid of the stress and the pressure. Other team members would walk with me but eventually it was mostly David because of his British passion for his daily constitutional.

‘The only time it was safe to talk about anything important was when we were walking. At our hotel, the Iraqis monitored us. The only place to change our underwear and not be filmed by their surveillance equipment was behind the shower curtains in our rooms.

‘The desk clerk at the hotel constantly called me, saying he was enamoured by me. I later discovered he was a lieutenant in the Iraqi military and I think it was a clumsy effort to elicit information from me.

‘One night, a group of us were out walking and suddenly a red laser shone out. It went from David’s heart to his head and it pretty much stayed on the middle of his forehead.

‘The inspectors said it happened all the time. The idea was to intimidate David, showing they could pick him out as a target even in the dark.’

'The general said it was children playing,’ she said derisively. ‘The other thing that bothered me was that key people on the team were constantly getting sick.

‘The symptoms were very similar to anthrax. We joked that they were poisoning us so we couldn’t finish our job. David pretty much lived on Vegemite and bread.’

After Ms Pederson returned to America, she was stationed at the Defence Language Institute in California. It has been described as a spy school but she says she worked as a personnel officer. The US Air Force often sent her on assignments that required a linguist, which she is not permitted to discuss.

She met Dr Kelly again after she was transferred to the Pentagon. ‘It was October 2002 and he was visiting Washington,’ she said. ‘He told me that the Iraqis had drawn up a hit list of people to be killed.

‘He said, “I am number three and you also are on it.” At the time, it didn’t really bother either of us. We understood there was a danger because of our jobs.

‘He also told me that if we invaded Iraq, he would be found dead in the woods. He loved to walk in the woods near his home. But he knew that walking alone made him vulnerable. The Iraqis wanted him dead.’

In May 2003, journalist Andrew Gilligan reported on BBC Radio 4’s Today programme that a source had disclosed that the Blair administration had ‘sexed up’ the dossier, accusing Saddam of harbouring weapons of mass destruction.

Dr Kelly was subsequently named as the source and the Hutton inquiry concluded that this plunged him into depression

Ms Pederson concedes that he was ‘upset’ by the episode but says that he brushed it off, insisting he had been misquoted.

And far from being opposed to the Government’s dossier, she says he was convinced that Saddam lied when he told the UN that he was no longer developing WMDs.

She said: ‘David believed the Iraqis were not being forthcoming during our inspections about their potential for making weapons. If they weren’t up to anything, why did we have to be accompanied by minders? And why were people scared to talk to us?

‘David’s position on the invasion was that it was regrettable but necessary because UN sanctions had failed. He said he was misquoted and his words were twisted and taken out of context.

‘He wasn’t depressed. He was upset. I have taken courses on suicide prevention and he exhibited none of the signs.

‘He was planning for his retirement. He wanted to make more money to provide for his family and he’d had job offers in the States as well as Europe. Also, he was excited that one of his daughters was getting married. He said, “The controversy will blow over.” ’

Ms Pederson claims that at the time of his death, Dr Kelly was looking forward to returning to Iraq. ‘Had he been alive, he finally would have been free to look for evidence of WMDs,’ she said. ‘If anyone could have found them, it would have been David.

‘I am not saying that the Iraqis killed him. But that is one possibility that should be investigated. All the facts suggest that David did not kill himself. It is against our Baha’i faith.

‘But for David there were also personal reasons - he believed his mother’s death was suicide. Research shows that suicide runs in families and I asked him if he would ever do that. I said, “Hypothetically, if you are ever at your wit’s end, promise me that you will seek help.”

‘He said, “I don’t see the relevance. I would never take any life, let alone my own.” He finally did say that if he was ever desperate, he would get help. That’s important because he was a man of his word. He could never hurt his wife and daughters the way that he was hurt by his mother’s death.’

Ms Pederson’s Washington DC lawyer, Mark Zaid, has made available to The Mail on Sunday parts of her final statement to Thames Valley Police, given on September 1, 2003.

Its ten pages would appear critical, since they describe Iraqi death threats and the incident with the laser. She also stated that she was bewildered about how Dr Kelly could have taken an overdose, as he suffered from a disorder that made it difficult for him to swallow pills.

‘I was so confused when I heard he had swallowed a load of painkillers,’ she told the officers.

She also emphasised in the statement that he suffered from pain and problems ‘grabbing things with his right hand, which he attributed to breaking his elbow’.

Police have implied that she did not give them permission to give her statement to the Hutton inquiry. But in fact she stipulated: ‘If specific information [in the statement] is deemed relevant to the coroner’s inquiry into the death of David Kelly, I am willing for Thames Valley to reveal the information in a non-attributable way.’

However, her statement was never given to the inquiry. The then Assistant Chief Constable of Thames Valley Police, Michael Page, testified that it ‘contained nothing of relevance’.

After the inquiry, Ms Pederson started to get death threats. ‘Some were from nuts,’ she said. But others, she believes, may have been related to her sensitive work with Dr Kelly in Iraq. And she spoke on condition that we do not reveal her whereabouts.

‘I can’t say for sure that David was murdered,’ she said. ‘But his life had been threatened because he strived to do what was best for humanity.

‘He deserved more from his country than an investigation that overlooked the fact that his right hand was so weak that he had problems cutting a piece of steak.’

(NaturalNews) The German government has provisionally banned a family of pesticides conclusively linked to the massive dieoff of honeybees in a southern state.

"It's a real bee emergency," said Manfred Hederer, president of the German Professional Beekeepers' Association, referring to the collapse of bee populations in the state of Baden-Württemberg. "Fifty to 60 percent of the bees have died on average and some beekeepers have lost all their hives."

Government researchers tested the bodies of dead bees, and found that 99 percent had been contaminated with the pesticide clothianidin, made by Bayer. The pesticide had been applied to the seeds of oilseed rape in the nearby Rhine River Valley.

Bayer blamed the dieoff on the improper application of the pesticide, which the U.S. Environmental Protection Agency has classified as "highly toxic" to honeybees. Normally, seeds to be sprayed with clothianidin and similar pesticides are treated with a kind of glue so that the toxin sticks. In this case, Bayer said, the glue was not applied, allowing the poison to get into the air.

Clothianidin is a pesticide in the neonicotinoid family. This class of chemicals is applied to seeds and then spreads into all the tissues of the plant. Based on nicotine, the neonicotinoids are toxic to the nervous systems of any insect that comes into contact with them.

"We have been pointing out the risks of neonicotinoids for almost 10 years now," saidPhilipp Mimkes of the Coalition Against Bayer Dangers. "This [incident] proves without a doubt that the chemicals can come into contact with bees and kill them. These pesticides shouldn't be on the market."

The German government, apparently in agreement, withdrew the licenses for eight neonicotinoid pesticides, including Bayer's best-selling insecticide, imidacloprid. If manufacturers submit evidence that the chemicals are safe for bees, however, the government may reinstate the licenses.

The Coalition Against Bayer Dangers wants Germany to follow the lead of France, which permanently banned imidacloprid after massive honeybee dieoffs in 1999. France also bans the use of clothianidin.

Tyler will be a hub for several thousand Hurricane Gustav evacuees as city officials enact its emergency response plan, and so far, it seems as though early relief efforts have been fluid.

Mayor Barbara Bass Saturday signed an official declaration of disaster/emergency condition during the second of two press conferences on Saturday. Mayor Bass said preparations are specifically geared towards the evacuations of special needs evacuees from Beaumont.

“We are fully prepared to respond to the emergency situation,” Mayor Bass said. “We have activated our emergency operations center as well as our reception center.”

The city’s reception center is located at Faulkner Park off of U.S. Highway 69, just north of Loop 49. A team of police, fire and medical officials are in place to greet and process evacuees, whether they come in official buses or in cars.

By 5 p.m. Saturday, the first four buses carrying about 155 people arrived in Tyler and headed directly to a shelter, Tyler Fire Department Captain Jeff Akin said.

Meanwhile at the reception center, about 12 people — a family of four and a group of eight — were the first to check in with officials before heading to a local shelter.

A small bus carrying about 15 evacuees arrived by 7 p.m. and about 1,000 more are expected to arrive by Monday, Akin said.

Tyler Fire Department Chief David Schlottach said following numerous conference calls with state officials, they are expecting to receive about 6,000 evacuees, although, he said he is uncertain if any will be coming from New Orleans.

“We really do have great communications with the state,” Chief Scholattach said. “Tyler is heavily involved in this.”

City officials said since the reception center will process thousands of people, they are implementing a system that will move people to shelters smoothly.

“We are really streamlining this process,” said Susan Guthrie, city of Tyler communications director.

Guthrie said evacuees coming in their own cars are asked to go directly to the reception center so they may keep up with the number of people they are receiving and to avoid having an overflow at some shelters.

Before leaving Beaumont, evacuees have already been entered into an intricate computer system that will keep track of them once they make it to Tyler.

“They already have a bracelet with a barcode,” Captain Akin said. “They will walk through the scanner and it automatically loads into the computers. We have a list of where they need to go.”

This system ensures that families can locate each other when coming to East Texas, Akin said.

“With Hurricane Katrina, we had no system. Families were calling wanting to know where family members were and we had no way of finding out. This way, we have a better way of tracking where people are going.”

Stan Lewis, with the Salvation Army, said they will provide food and water to evacuees at the reception center through Monday, before heading south. He said 150 volunteers will load up on about 20 disaster vehicles but he is unsure what city they will be deployed to.

“We could go to New Orleans or it could be Port Arthur,” Lewis said. “Until then, we are going to try to help these people.”

Bob Frazier, 66, was among one of the first evacuees off of the first bus at the reception center. Although anxious about the result of Hurricane Gustav, he said he was a little more at ease with the way state and local officials are handling the evacuation process. During Hurricane Rita, Frazier said he spent three days on a bus without food, water and bathroom breaks.

“Today we had plenty of water and it only took us about four hours to get here,” Frazier said as he snacked on a peanut butter and jelly sandwich provided by Salvation Army volunteers. “It wasn’t bad at all. I knew it would be different this time.”

Jason Hollowell, a Tyler Junior College paramedic student, volunteered at the center and said he was prepared to be there all night, bringing an extra change of clothes. He said he helped with relief efforts during Hurricane Katrina and he is also pleased that things are much more organized this time.

“It’s a week before and it’s already set up,” Hollowell said. “There are things we are doing in anticipation and preparation. With Katrina, the storm hit and we walked outside and there were 45 buses. We learned a lot about what not to do from three years ago.”

With the influx of evacuees, Chief Schlottach noted that East Texas drivers are to use precaution when traveling roads and highways.

“Traffic will be very congested because there are a great number of self evacuees coming up the highway,” he said. “I just advise citizens to bear with it because their fellow Texans are trying to get out of harm’s way.”

Chief Schottach said those interested in volunteering can call 211 to find out ways to help with relief efforts.

With the signing of the declaration and activation of the emergency management plan, Mayor Bass said the city will now be eligible to request reimbursement from federal funds for providing shelter and relief to evacuees.

The other night, the Rev. James Dobson's ministry asked all believers to pray for a storm on Thursday night so that the Obama acceptance speech outdoors in Denver would have to be cancelled.

I see that You have answered Rev. Dobson's prayers -- except the storm You have sent to earth is not over Denver, but on its way to New Orleans! In fact, You have scheduled it to hit Louisiana at exactly the moment that George W. Bush is to deliver his speech at the Republican National Convention.

Now, heavenly Father, we all know You have a great sense of humor and impeccable timing. To send a hurricane on the third anniversary of the Katrina disaster AND right at the beginning of the Republican Convention was, at first blush, a stroke of divine irony. I don't blame You, I know You're angry that the Republicans tried to blame YOU for Katrina by calling it an "Act of God" -- when the truth was that the hurricane itself caused few casualties in New Orleans. Over a thousand people died because of the mistakes and neglect caused by humans, not You.

Some of us tried to help after Katrina hit, while Bush ate cake with McCain and twiddled his thumbs. I closed my office in New York and sent my entire staff down to New Orleans to help. I asked people on my website to contribute to the relief effort I organized -- and I ended up sending over two million dollars in donations, food, water, and supplies (collected from thousands of fans) to New Orleans while Bush's FEMA ice trucks were still driving around Maine three weeks later.

But this past Thursday night, the Washington Post reported that the Republicans had begun making plans to possibly postpone the convention. The AP had reported that there were no shelters set up in New Orleans for this storm, and that the levee repairs have not been adequate. In other words, as the great Ronald Reagan would say, "There you go again!"

So the last thing John McCain and the Republicans needed was to have a split-screen on TVs across America: one side with Bush and McCain partying in St. Paul, and on the other side of the screen, live footage of their Republican administration screwing up once again while New Orleans drowns.

So, yes, You have scared the Jesus, Mary and Joseph out of them, and more than a few million of your followers tip their hats to You.

But now it appears that You haven't been having just a little fun with Bush & Co. It appears that Hurricane Gustav is truly heading to New Orleans and the Gulf coast. We hear You, O Lord, loud and clear, just as we did when Rev. Falwell said You made 9/11 happen because of all those gays and abortions. We beseech You, O Merciful One, not to punish us again as Pat Robertson said You did by giving us Katrina because of America's "wholesale slaughter of unborn children." His sentiments were echoed by other Republicans in 2005.

So this is my plea to you: Don't do this to Louisiana again. The Republicans got your message. They are scrambling and doing the best they can to get planes, trains and buses to New Orleans so that everyone can get out. They haven't sent the entire Louisiana National Guard to Iraq this time -- they are already patrolling the city streets. And, in a nod to I don't know what, Bush's head of FEMA has named a man to help manage the federal government's response. His name is W. Michael Moore. I kid you not, heavenly Father. They have sent a man with both my name AND W's to help save the Gulf Coast.

So please God, let the storm die out at sea. It's done enough damage already. If you do this one favor for me, I promise not to invoke your name again. I'll leave that to the followers of Rev. Dobson and to those gathering this week in St. Paul.

Michael Hudson is a former Wall Street economist specializing in the balance of payments and real estate at the Chase Manhattan Bank (now JP Morgan Chase & Co.), Arthur Anderson, and later at the Hudson Institute (no relation).

In 1990 he helped established the world’s first sovereign debt fund for Scudder Stevens & Clark. Dr. Hudson was Dennis Kucinich’s Chief Economic Advisor in the recent Democratic primary presidential campaign, and has advised the U.S., Canadian, Mexican and Latvian governments, as well as the United Nations Institute for Training and Research (UNITAR). A Distinguished Research Professor at University of Missouri, Kansas City (UMKC), he is the author of many books, including Super Imperialism: The Economic Strategy of American Empire (new ed., Pluto Press, 2002

Mike Whitney: The United States current account deficit is roughly $700 billion. That is enough "borrowed" capital to pay the yearly $120 billion cost of the war in Iraq, the entire $450 billion Pentagon budget, and Bush’s tax cuts for the rich. Why does the rest of the world keep financing America’s militarism via the current account deficit or is it just the unavoidable consequence of currency deregulation, "dollar hegemony" and globalization?

Michael Hudson: As I explained in Super Imperialism, central banks in other countries buy dollars not because they think dollar assets are a “good buy,” but because if they did NOT recycle their trade surpluses and U.S. buyout spending and military spending by buying U.S. Treasury, Fannie Mae and other bonds, their currencies would rise against the dollar. This would price their exporters out of dollarized world markets. So the United States can spend money and get a free ride.

The solution is (1) capital controls to block further dollar receipts, (2) floating tariffs against imports from dollarized economies, (3) buyouts of U.S. investments in dollar-recipient countries (so that Europe and Asia would use their central bank dollars to buy out U.S. private investments at book value), (4) subsidized exports to dollarized economies with depreciating currency, and similar responses that the United States would adopt if it were in the position of a payments-surplus country. In other words, Europe and Asia would treat the United States as its Washington Consensus boys treat Third World debtors: buy out their raw materials and other industries, their export plantations, and their governments.

MW: Economist Henry Liu said in his article "Dollar hegemony enables the US to own indirectly but essentially the entire global economy by requiring its wealth to be denominated in fiat dollars that the US can print at will with little in the way of monetary penalties…..World trade is now a game in which the US produces fiat dollars of uncertain exchange value and zero intrinsic value, and the rest of the world produces goods and services that fiat dollars can buy at "market prices" quoted in dollars." Is Liu overstating the case or have the Federal Reserve and western banking elites really figured out how to maintain imperial control over the global economy simply by ensuring that most energy, commodities, and manufactured goods are denominated in dollars? If that’s the case, then it would seem that the actual "face-value" of the dollar does not matter as much as long as it continues to be used in the purchase of commodities. Is this right?

Michael Hudson: Henry Liu and I have been discussing this for many years now. We are in full agreement. The paragraph you quote is quite right. His Asia Times articles provide a running analysis of dollar hegemony.

MW:What is the relationship between stagnant wages for workers and the current credit crisis? If workers wages had kept up with the rate of production, isn’t it less likely that we would be in the jam we are today? And, if that is true, than shouldn’t we be more focused on re-unionizing the labor force instead looking for solutions from the pathetic Democratic Party?

Michael Hudson: The credit crisis derives from “the magic of compound interest,” that is, the tendency of debts to keep on doubling and redoubling. Every rate of interest is a doubling time. No “real” economy’s production and economic surplus can keep up with this tendency of debt to grow faster. So the financial crisis would have occurred regardless of wage levels.

Quite simply, the price of home ownership tends to absorb all the disposable personal income of the homebuyer. So if wages would have risen more rapidly, the price of housing would simply have risen faster as employees pledged more take-home pay to carry larger mortgages. Stagnant wages merely helped keep down the price of houses to merely stratospheric levels, not ionospheric ones.

As for labor unions, they haven’t been any help at all in solving the housing crisis. In Germany where I am right now, unions have sponsored co-ops, as they used to do in New York City, at low membership costs. So housing costs only absorb about 20% of German family budgets, compared to twice that for the United States. Imagine what could be done if pension funds had put their money into housing for their contributors, instead of into the stock market to buy and bid up prices for the stocks that CEOs and other insiders were selling.

MW:When politicians or members of the foreign policy establishment talk about "integrating" Russia or China into the "international system"; what exactly do they mean? Do they mean the dollar-dominated system which is governed by the Fed, the World Bank, the IMF, and the WTO? Do countries compromise their national sovereignty when they participate in the US-led economic system?

Michael Hudson: By “integrating” they mean absorbing, something like a parasite integrating a host into its own control system. They mean that other countries will be prohibited under WTO and IMF rules from getting rich in the way that the United States got wealthy in the 19th and early 20th centuries. Only the United States will be permitted to subsidize its agriculture, thanks to its unique right to grandfather in its price supports. Only the United States will be free from having to raise interest rates to stabilize its balance of payments, and only it can devote its monetary policy to promoting easy credit and asset-price inflation. And only the United States can run a military deficit, obliging foreign central banks in dollar-recipient countries to give it a free ride. In other words, there is no free lunch for other countries, only for the United States.

Other countries do indeed give up their national sovereignty. The United States never has adjusted its economy to create equilibrium with other countries. But to be fair, in this respect only the United States is acting fully in its own self-interest. The problem is largely that other countries are not “playing the game.” They are not acting as real governments. It takes two to tango when one party gets a free ride. Their governments have become “enablers” of U.S. economic aggression.

MW:What do you think the Bush administration’s reaction would be if a smaller country, like Switzerland, had sold hundreds of billions of dollars of worthless mortgage-backed securities to investment banks, insurance companies and investors in the United States? Wouldn’t there be litigation and a demand that the responsible parties be held accountable? So, how do you explain the fact that China and the EU nations, that were the victims of this gigantic swindle, haven’t boycotted US financial products or called for reparations?

Michael Hudson: International law is not clear on financial fraud. Caveat emptor is the rule. Foreign investors took a risk. They trusted a deregulated U.S. financial market that made it easiest to make money via financial fraud. Ultimately, they put their faith in neoliberal deregulation – at home as well as in the United States. England is now in the same mess. The “accountability” was supposed to lie with U.S. accounting firms and credit rating agencies. Foreign investors were so ideologically blinded by free market rhetoric that they actually believed the fantasies about “self-regulation” and self-regulating markets tending toward equilibrium rather than the real-world tendency toward financial and economic polarization.

In other words, most foreign investors lack a realistic body of economic theory. The United States could simply argue that they should take responsibility for their bad investments, just as U.S. pension funds and other investors are told to do.

MW:The Congress recently passed a bill that gives Treasury Secretary Henry Paulson the unprecedented authority to use as much money as he needs to keep Fannie Mae and Freddie Mac solvent. Paulson assured the Congress that he wouldn’t need more than $25 billion but, the 400 page bill allows him to increase the national debt by $800 billion. How will the Fannie/Freddie bailout affect the dollar and the budget deficit? Are interest rates likely to skyrocket because of this action?

Michael Hudson: The Fed can flood the economy with money, Alan Greenspan-style, to prevent interest rates from skyrocketing. Nobody really knows what will happen to FNMA and Freddie Mac, but it looks like the mortgage and financial crisis will get much, much worse over the coming year. We are just heading into the storm where adjustable-rate mortgages (ARMs) are scheduled to reset at higher rates, and where U.S. banks have to roll over their existing debts in a market where foreign investors fear that these banks already have no net worth left.

So the principle here is “Big fish eat little fish.” Wall Street will be bailed out, and banks will be allowed to “earn their way out of debt” as they did after 1980, by exploiting retail customers, above all credit-card customers and individual borrowers. There will be a lot of bankruptcies, and people will suffer more than ever before because of the harsh pro-creditor bankruptcy law that Congress passed at the behest of the bank lobbyists.

MW: A few months ago, the Wall Street Journal ran an editorial which said that they could imagine two nightmare scenarios if the current credit crisis was not handled properly; either there would be a run on the dollar causing a sudden plunge in its value, or the unexpected failure of a major financial institution could send the stock market crashing. Last week, the former head of the IMF Kenneth Rogoff triggered a sell-off on Wall Street when he said, "We’re not just going to see mid-sized banks go under in the next few months, we’re going to see a whopper; we’re going to see a big one — one of the big investment banks or big banks." What happens if Rogoff is right and Merrill, Citi or Lehman go belly up? Is that enough to send the stock market freefalling?

Michael Hudson: Not necessarily. Citibank would be nationalized, then sold off. The principle should be that if a bank is “too big to fail,” it should be broken up.

This should start with a repeal of the Clinton Administration’s repeal of Glass-Steagall.

As for Lehman, that would be given the Bear Stearns treatment, and also sold off – probably to a hedge fund. Merrill is much larger, but it also could be parceled out, I suppose. The stock market’s financial index would plunge, but not necessarily industrial stock prices.

MW:According to MarketWatch: "In the three months from April to June, banks posted their second worst earnings performance since 1991…. Earnings for the quarter totaled just $5 billion, compared with $36.8 billion a year ago, a decline of 86.5%." Also, according to a front page article in the Wall Street Journal: "financial institutions will have to pay off at least $787 billion in floating rate notes and other medium term obligations before the end of 2009." How are the banks going to pay off nearly $800 billion ($200 billion by December!) when they only earned a measly $5 billion in the quarter!?! And how in the world is the Federal Reserve going to keep the banking system functioning when earnings can’t even cover current liabilities? Do the banks have some secret source of revenue we don’t know about or is the system headed for disaster?

Michael Hudson: The traditional way to pay debt is with yet MORE debt. The interest due is simply added on to the principal, so that the debt grows exponentially. This is the real meaning of “the magic of compound interest.” It means not only that savings left to accumulate interest keep on doubling and redoubling, debts do to, because the savings that are lent out on the “asset” side of the creditor’s balance sheet (today, that of America’s wealthiest 10%) become debts on the “liabilities” side of the balance sheet (the “bottom 90%”).

The banks don’t have a secret source of revenue. It’s right out in the open. They will take their junk mortgages to the Federal Reserve and borrow the money at full face value. The government will be left with the junk.

It then can either take over the bank, as the Bank of England did with Northern Rock when it went bankrupt early this year, or it can let the bank “earn” money by stiffing its customers some more.

MW: From 2000 to 2006, the total retail value of housing in the United States doubled, going from roughly $11 trillion to $22 trillion in just 6 years. For the last 200 years, housing has barely kept pace with the rate of inflation, usually increasing 2 to 3% per year. The Federal Reserve’s low interest rates were the main cause of this unprecedented housing bubble and, yet, ex-Fed chief Alan Greenspan still denies any responsibility for what "The Economist" calls "the largest bubble in history". Did Greenspan understand the problems he was creating with his "loose" monetary policies or was there some ulterior motive to his actions?

Michael Hudson: He simply didn’t care about the problem. He saw his job as a cheerleader for people who were able to get rich fast. These always had been his major clients in his years on Wall Street, and he saw himself as their servant – sort of like a pilot fish for sharks.

Mr. Greenspan’s idea of “wealth creation” was to take the line of least resistance and inflate asset prices. He thought that the way to enable the economy to carry its debt overhead was to inflate asset prices so that debtors could borrow the interest falling due by pledging collateral (real estate, stocks and bonds) that were rising in market price. To his Ayn-Rand view of the world, one way of making money was as economically and socially productive as any other way of doing so. Buying a property and waiting for its price to inflate was deemed as productive as investing in new means of production.

Ever since his days as co-founder of NABE (the National Association of Business Economists), Greenspan has long looked only at GNP and the national balance sheet as an economic indicator, being “value-free.” This is his intellectual and conceptual limitation. He wanted to provide a way for savvy investors to get rich, and the easiest way to get rich is to be passive and get a free lunch. His ideology led him to believe the “free market” ideology that the financial sector would be self-regulating and hence would act honestly. But he opened the floodgates to financial crooks. His set of measures did not distinguish between Countrywide Financial getting rich, Enron getting rich, or General Motors or industrial companies expanding their means of production. So the economy was being hollowed out, but this didn’t appear in any of the measures he looked at from his perch at the Federal Reserve.

So just as journalists and the mass media proclaim every market downturn as “surprising” and “unexpected,” he was as clueless as a lemming running headlong over the cliff. It’s an inherent instinct for free-market boys.

MW: The housing market is freefalling, setting new records every day for foreclosures, inventory, and declining prices. The banking system is in even worse shape; undercapitalized and buried under a mountain of downgraded assets. There seems to be growing consensus that these problems are not just part of a normal economic downturn, but the direct result of the Fed’s monetary policies. Are we seeing the collapse of the Central banking model as a way of regulating the markets? Do you think the present crisis will strengthen the existing system or make it easier for the American people to assert greater control over monetary policy?

Michael Hudson: What do you mean “failure”? Your perspective is from the bottom looking up. But the financial model has been a great success from the vantage point of the top of the economic pyramid looking down? The economy has polarized to the point where the wealthiest 10% now own 85% of the nation’s wealth. Never before have the bottom 90% been so highly indebted, so dependent on the wealthy. From their point of view, their power has exceeded that of any time in which economic statistics have been kept.

You have to realize that what they’re trying to do is to roll back the Enlightenment, roll back the moral philosophy and social values of classical political economy and its culmination in Progressive Era legislation, as well as the New Deal institutions. They’re not trying to make the economy more equal, and they’re not trying to share power. Their greed is (as Aristotle noted) infinite. So what you find to be a violation of traditional values is a re-assertion of pre-industrial, feudal values. The economy is being set back on the road to debt peonage. The Road to Serfdom is not government sponsorship of economic progress and rising living standards; it’s the dismantling of government, the dissolution of regulatory agencies, to create a new feudal-type elite.

The former Soviet Union provides a model of what the neoliberals would like to create. Not only in Russia but also in the Baltic States and other former Soviet republics, they created local kleptocracies, Pinochet-style. In Russia, the kleptocrats founded an explicitly Pinochetista party, the Party of Right Forces (“Right” as in right-wing).

In order for the American people or any other people to assert greater control over monetary policy, they need to have a doctrine of just what a good monetary policy would be. Early in the 19th century the followers of St. Simon in France began to develop such a policy. By the end of that century, Central Europe implemented this policy, mobilizing the banking and financial system to promote industrialization, in consultation with the government (and catalyzed by military and naval spending, to be sure). But all this has disappeared from the history of economic thought, which no longer is even taught to economics students. The Chicago Boys have succeeded in censoring any alternative to their free-market rationalization of asset stripping and economic polarization.

My own model would be to make central banks part of the Treasury, not simply the board of directors of the rapacious commercial banking system. You mentioned Henry Liu’s writings earlier, and I think he has come to the same conclusion in his Asia Times articles.

MW: Do you see the Federal Reserve as an economic organization designed primarily to maintain order in the markets via interest rates and regulation or a political institution whose objectives are to impose an American-dominated model of capitalism on the rest of the world?

Michael Hudson: Surely, you jest! The Fed has turned “maintaining order” into a euphemism for consolidating power by the financial sector and the FIRE sector generally (Finance, Insurance and Real Estate) over the “real” economy of production and consumption. Its leaders see their job as being to act on behalf of the commercial banking system to enable it to make money off the rest of the economy. It acts as the Board of Directors to fight regulation, to support Wall Street, to block any revival of anti-usury laws, to promote “free markets” almost indistinguishable from outright financial fraud, to decriminalize bad behavior – and most of all to inflate the price of property relative to the wages of labor and even relative to the profits of industry.

The Fed’s job is not really to impose the Washington Consensus on the rest of the world. That’s the job of the World Bank and IMF, coordinated via the Treasury (viz. Robert Rubin under Clinton most notoriously) and AID, along with the covert actions of the CIA and the National Endowment for Democracy. You don’t need monetary policy to do this – only massive bribery. Only call it “lobbying” and the promotion of democratic values – values to fight government power to regulate or control finance across the world. Financial power is inherently cosmopolitan and, as such, antagonistic to the power of national governments.

The Fed and other government agencies, Wall Street and the rest of the economy form part of an overall system. Each agency must be viewed in the context of this system and its dynamics – and these dynamics are polarizing, above all from financial causes. So we are back to the “magic of compound interest,” now expanded to include “free” credit creation and arbitraging.

The problem is that none of this appears in the academic curriculum. And the silence of the major media to address it or even to acknowledge it means that it is invisible except to the beneficiaries who are running the system.

Friday, August 29, 2008

JUNEAU, Alaska (AP) — Gov. Sarah Palin, a rising young GOP star mentioned as a possible running mate for John McCain, could see her clean-hands reputation damaged by a growing furor over whether she tried to get her former brother-in-law fired as a state trooper.

A legislative panel has launched a $100,000 investigation to determine if Palin dismissed Alaska's public safety commissioner because he would not fire the trooper, Mike Wooten. Wooten went through a messy divorce from Palin's sister.

Palin has denied the commissioner's dismissal had anything to do with her former brother-in-law. And she denied orchestrating the dozens of telephone calls made by her husband and members of her administration to Wooten's bosses.

Palin said she welcomes the investigation: "Hold me accountable."

Still, the allegations she abused her office could prove embarrassing for Palin, who got elected in 2006 on an ethics reform platform.

"It could be a bit of a knock on the clean-government issue in Alaska she backed," said Shaun Bowler, a political scientist at the University of California at Riverside.

Referring to Republican Sen. Ted Stevens' recent indictment on corruption charges and the bribery-and-conspiracy scandal that has ensnared five former or current state lawmakers, GOP analyst John Feehery said: "Right now, in Alaska all you have to do is say the word 'investigation' and people are going to be running away."

Nevertheless, Palin is still riding high in Alaska, where she jump-started a project to build a natural gas pipeline and pushed through a plan to send every resident $1,200 from the state's oil-rich treasury to offset high fuel prices.

And based on what has come out so far, some GOP insiders and political scientists said they are not worried about the effect on her prospects for higher office. (Some analysts said that because of her relative inexperience, Palin never had any realistic chance of being picked for vice president.)

"I would be very surprised if Sarah Palin didn't become a larger figure within national politics and I would be very surprised if she wasn't a part of a McCain administration," said Todd Harris, a Republican aide on McCain's 2000 White House bid.

Up to now, GOP insiders and political analysts have marveled at Palin's ascent on the national scene, calling her fearless style, her reform efforts, her energy and her glamour refreshing.

The 44-year-old Palin has not been afraid to take on the Republican Old Guard in Alaska and has tangled with the oil companies over taxes and gas leases. Last year, the former beauty queen posed for a photo shoot in Vogue, and this spring she gave birth to her fifth child, who was found to have Down syndrome.

Palin's problems started a month ago when she fired Public Safety Commissioner Walt Monegan, saying she wanted the department to go in a new direction.

Monegan has said he does not know why he was fired. But he said pressure to get rid of Wooten had come from those around Palin, including her husband, Todd; her former chief of staff; and other top officials.

In 2005, before Palin ran for office, the Palin family accused Wooten of drinking a beer while in his patrol car, illegal hunting and firing a Taser at his 11-year-old stepson. The Palins also claimed Wooten threatened to kill Sarah Palin's father.

Wooten was suspended over the allegations for five days in 2006 but is still on the job. Monegan refused to comment on Wooten's situation, saying he could not discuss personnel matters.

More recently, Todd Palin said, he took his concerns over the governor's safety directly to Monegan. But he said he never told anyone to fire Wooten.

Wooten has refused to comment.

Attorney General Talis Colberg's conducted an investigation and found that 14 members of the Palin administration — including Colberg himself — made calls to Department of Public Safety officials about Wooten.

In one of those calls, Frank Bailey, director boards and commissions, was tape-recorded as saying: "Todd and Sarah are scratching their heads, why on earth hasn't, why is this guy still representing the department?"

On Wednesday, Palin said none of the two dozen or so calls were made at her direction.

Bailey, similarly, said he acted on his own. He said the only time he heard the governor discuss Wooten was during a security briefing shortly after she was elected.

"From that point on I've had a concern this person could fly off the handle and do something terrible to the governor, to her family or to the public," Bailey said.

DENVER—Former Sen. John Edwards was supposed to speak in Denver at the Democratic National Convention. His wife, Elizabeth Edwards, was to speak also. Poverty was their focus. But they are not here because John Edwards had an affair. Will the Democrats now forget about poverty?

Chris Chafe is a former senior adviser to the Edwards campaign. He is now the executive director of the Change to Win coalition, the group of unions well known for their early endorsement of Obama. They split from the AFL-CIO in 2005. I asked Chafe about the absence of Edwards and his message at the convention:

“We miss him being here. He is an important voice in our party. ... It is certainly a loss. ... We have to look within ourselves in a moment of crisis when we have somebody of symbolic and strong value and leadership who takes a fall ... we have to continue moving forward with all of the values, strengths, priorities and leadership that he brought to the race, we have to carry that forward ... far beyond this election season.”

Change to Win supports the unionization of workers at Wal-Mart. Last month, The Wall Street Journal revealed that Wal-Mart has been warning managers that a Barack Obama victory would lead to unionization. In recent weeks, thousands of Wal-Mart store managers and department heads have been summoned to mandatory meetings discussing the downside of unionization and told that a vote for Obama is tantamount to inviting unions in. Chafe said: “The company had been holding what we would consider captive-audience meetings where they are on company time, they are paid but they are required to go to meetings. ... This is going beyond the normal routine of intimidation. Now they are trying to deny workers rights at the ballot box, and that is something we felt we could not allow to take place and had to let the world know this is happening in the country’s largest employer. ... You are not allowed to tell your employees how they are supposed to vote. It is the most sacred right in our democracy.” Change to Win and others have filed a complaint with the Federal Election Commission, challenging Wal-Mart’s actions.

During the primaries in the blue-collar battleground states, Obama effectively pointed out that Hillary Clinton served on the Wal-Mart board for six years, implying an anti-worker, anti-union association. Shortly after she dropped out of the race, however, the Obama campaign appointed Jason Furman as a senior economics adviser. Furman has rankled labor activists, writing that the benefits of Wal-Mart’s low prices outweigh its low wages. On that appointment, Chafe said, “We’ve met privately with [Obama] about it, and we’ve met privately with Jason. The senator brought Jason on to manage the day-to-day war-room operations of their message to illustrate contrast with [John] McCain. ... We made it clear, as did the senator, that there were certainly differences of viewpoint between he and Jason on a series of issues. We believe that Barack Obama has stood firm and clear on our agenda and the [Wal-Mart] workers’ agenda.”

On low prices trumping low wages, Chafe chafed: “Absolute hogwash ... Wal-Mart gets a pass because they pass along savings, they are passing along poverty. Poverty to workers across the world who are producing their goods. Poverty to the people that are working in their stores representing them who are trying to make a living, many of whom probably have multiple jobs to afford to raise their families. ... You name it, they find every way to cut corners and cut their workers out of their success.”

The U.S. Census Bureau released a poverty report on Aug. 26. More than 37 million people are in poverty in the U.S. With Edwards iced out of the discussion, and free-trade economists advising the Obama campaign, the question remains: What of poverty?

Obama’s nomination acceptance speech comes on the 45th anniversary of Dr. Martin Luther King Jr.’s “I Have a Dream” address. King related poverty and justice: “We refuse to believe that there are insufficient funds in the great vaults of opportunity of this nation. So we have come to cash this check—a check that will give us upon demand the riches of freedom and the security of justice. We have also come to this hallowed spot to remind America of the fierce urgency of now. ... Now is the time to make real the promises of democracy.”

Blackwater is compiling a list of qualified security personnel for possible deployment into areas affected by Hurricane Gustav. Applicants must meet all items listed under the respective Officer posting and be US citizens. Contract length is TBD.

Law Enforcement Officers (all criteria must apply)

1. Current sworn [may be full time, part time or reserve]2. With arrest powers3. Armed status (must indicate Armed and/or Semi Auto. Revolver only not accepted) expiration must be greater than 60 days out4. Departmental credentials (not just a badge)

Twelve men recruited in Nepal died after forced transfer to Iraq, lawfirm saysThirteen Nepali men were recruited and held against their will for thirteen months in a human trafficking scheme engineered and perpetrated by Halliburton and its Jordanian contractor, according to a lawsuit filed yesterday in California federal court.

The Nepali men, each between the ages of 18 and 27, were allegedly hired as kitchen staff by the then-Halliburton subsidiary KBR and its Jordanian subcontractor, Daoud & Partners. Once they arrived in Jordan, however, their passports were seized and they were dispatched to Iraq.

"Tragically, as the men were being transported to Iraq, a car containing twelve of the men was stopped by members of the Ansar al-Sunna Army, an insurgent group," the Washington lawfirm Cohen, Milstein, Hausfeld & Toll writes. "The 12 men in the car were taken hostage and executed by the insurgents. The executions were filmed and posted on the Internet. The Inspector General for the United States Department of Defense investigated and confirmed the facts related to the fate of the 12 men, which led to increased enforcement of anti-trafficking measures by the United States."

Only one man survived. After he was released by Iraqi rebels, he said he was assigned to work as a loader/unloader in a US military warehouse facility supervised by KBR. He asserts that he was held for 15 months against his well, before the firm finally allowed him to return home to Nepal.

Cohen, Milstein is suing on behalf of their families and the remaining survivor, Buddi Prasad Gurung. According to the law firm, their families went deep into debt to pay recruiting fees to Halliburton's contractor in order to get promised jobs.

This spring, a judge at the Department of Labor ordered KBR's contractor, Daoud, to pay $1 million to the families of 11 of the victims. "The Inspector General for the United States Department of Defense investigated and confirmed the facts related to the fate of the 12 men, which led to increased enforcement of anti-trafficking measures by the United States," the lawfirm said in a release.

KBR declined to comment directly on the charges when contacted by the Washington Post Wednesday.

"KBR has not seen the lawsuit so it is premature for us to comment at this time," KBR spokeswoman Heather Browne wrote the Post in an e-mailed statement. "The safety and security of all employees and those the company serves remains KBR's top priority. The company in no way condones or tolerates unethical or illegal behavior."

KBR was spun off from Halliburton in a 2006 IPO, and formally disengaged from the company in 2007. The spinoff appears party as a result of negative press relating to allegations the company engaged in overbilling and got sweetheart deals. KBR had been Halliburton's engineering arm for 44 years, and was also accused of overbilling and sweetheart deals during the Vietnam War.

The family members and the survivor are suing under the Trafficking Victims Protection Reauthorization Act, the Racketeering Influenced and Corrupt Organizations Act, and the Alien Tort Claims Act. The DC lawfirm representing them often focuses on victims of forced and slave labor and other violations of international law.

Police plan 'supermarket cells' to hold shoplifters and drunks Supermarket police cells could be set up in shopping malls and town centres to hold shoplifters, drunks and other short-term offenders. By Aislinn Simpson Last Updated: 10:21AM BST 29 Aug 2008

The short-term lockups could hold prisoners for up to four hours where they would be finger-printed, photographed and have a DNA sample taken.

They would allow beat bobbies to remove offenders from circulation without spending too long off the street themselves.

Offenders held in the cells could then either be released with a fine, or referred for further action or charging.

The so-called "supermarket cells" have already been piloted in Selfridges on Oxford Street.

The plans are outlined in the a review of the Police and Criminal Evidence Act as part of the first major shakeup of law-enforcement powers in more than 20 years.

The reform aims to cut red tape for frontline officers, improve efficiency and protect the rights of the public and were set out by Home Office Minister Tony McNulty.

They also include measures that could see police able to question children without their parents or other relatives being present.

The proposal still provides for relatives to attend interviews, but removes the need for that interview to be stalled until they arrive, settling instead for interim presence of an "appropriate adult" such as a social worker or community volunteer.

Police will also be given extra powers to enter a suspect's home, and courts will be allowed to draw an "adverse inference" from a suspect's refusal to take part in an identity parade.

Changes which would allow a police inspector to extending the custody time limit from 24 hours to 36, instead of a officer of superintendent rank or above as at present, are also on the table, and extensions could be arranged by telephone or video link instead of in person.

Mr McNulty said: "Through PACE we have sought to further reduce police bureaucracy, making sure that the public feel confident with police accountability while at the same time ensuring that the police have the power to carry out their key duties on the frontline."

The biggest Newspaper in the Netherlands today devotes its front page to news that the Dutch intelligence agency has helped the CIA prepare for an air attack on Iran which it now believes is imminent.

AVID, Holland's military intelligence service, has pulled back from operations it was carrying out inside Iran as it believes an American led attack will go ahead within weeks according to De Telegraaf's sources.

The headline reads:

"AIVD is calling back spy because of US plansATTACK ON IRAN IMMINENT"

De Telegraaf reports that the decision has already been made by the U.S.to attack Iran using unmanned aircraft. Potential targets are said to be nuclear facilities and military installations. The latter have been mapped by the CIA with the help of the Dutch secret service.

A portion of the article reads:

Good sources have declared to the Telegraaf that the AIVD has been operating in Iran for the last few years with the purpose of the infiltration and sabotage of the weapons industry of the Iranian republic.

The operations are said to have been "very successful" but have recently been put to a halt because of american plans for an air attack. Information regarding the AIVD operation has been shared with the CIA in recent years according to the sources.

Iran is probably working towards an atomic bomb and refuses to comply to western demands to stop enriching uranium. In june Israeli vice president Shaul Mofaz made the statement that an Israeli attack is inevitable if Iran continues its quest for atomic weapons.

The full article is online here.

A roughly translated version can also be found here.

Holland is a staunch ally of the U.S. government in the "war on terror". Dutch troops have served on the front lines in both the Afghanistan and Iraq wars.

Russia may cut off oil flow to the West By Ambrose Evans-PritchardLast Updated: 4:02pm BST 29/08/2008

Fears are mounting that Russia may restrict oil deliveries to Western Europe over coming days, in response to the threat of EU sanctions and Nato naval actions in the Black Sea.

Any such move would be a dramatic escalation of the Georgia crisis and play havoc with the oil markets.

Reports have begun to circulate in Moscow that Russian oil companies are under orders from the Kremlin to prepare for a supply cut to Germany and Poland through the Druzhba (Friendship) pipeline. It is believed that executives from lead-producer LUKoil have been put on weekend alert.

"They have been told to be ready to cut off supplies as soon as Monday," claimed a high-level business source, speaking to The Daily Telegraph. Any move would be timed to coincide with an emergency EU summit in Brussels, where possible sanctions against Russia are on the agenda.

Any evidence that the Kremlin is planning to use the oil weapon to intimidate the West could inflame global energy markets. US crude prices jumped to $119 a barrel yesterday on reports of hurricane warnings in the Gulf of Mexico, before falling back slightly.

Global supplies remain tight despite the economic downturn engulfing North America, Europe and Japan. A supply cut at this delicate juncture could drive crude prices much higher, possibly to record levels of $150 or even $200 a barrel.

With US and European credit spreads already trading at levels of extreme stress, a fresh oil spike would rock financial markets. The Kremlin is undoubtedly aware that it exercises extraordinary leverage, if it strikes right now.

Such action would be seen as economic warfare but Russia has been infuriated by Nato meddling in its "backyard" and threats of punitive measures by the EU. Foreign minister Sergei Lavrov yesterday accused EU diplomats of a "sick imagination".

Armed with $580bn of foreign reserves (the world's third largest), Russia appears willing to risk its reputation as a reliable actor on the international stage in order to pursue geo-strategic ambitions.

"We are not afraid of anything, including the prospect of a Cold War," said President Dmitry Medvedev.

The Polish government said yesterday that Russian deliveries were still arriving smoothly. It was not aware of any move to limit supplies. The European Commission's energy directorate said it had received no warnings of retaliatory cuts.

Russia has repeatedly restricted oil and gas deliveries over recent years as a means of diplomatic pressure, though Moscow usually explains away the reduction by referring to technical upsets or pipeline maintenance.

Last month, deliveries to the Czech Republic through the Druzhba pipeline were cut after Prague signed an agreement with the US to install an anti-missile shield. Czech officials say supplies fell 40pc for July. The pipeline managers Transneft said the shortfall was due to "technical and commercial reasons".

Supplies were cut to Estonia in May 2007 following a dispute with Russia over the removal of Red Army memorials. It was blamed on a "repair operation". Latvia was cut off in 2005 and 2006 in a battle for control over the Ventspils terminals. "There are ways to camouflage it," said Vincent Sabathier, a senior fellow at the Centre for Strategic and International Studies in Washington.

"They never say, 'we're going to cut off your oil because we don't like your foreign policy'."

A senior LUKoil official in Moscow said he was unaware of any plans to curtail deliveries. The Kremlin declined to comment.

London-listed LUKoil is run by Russian billionaire Vagit Alekperov, who holds 20pc of the shares. LUKoil produces 2m barrels per day (b/d), or 2.5pc of world supply. It exports one fifth of its output to Germany and Poland.

Although Russia would lose much-needed revenue if it cut deliveries, the Kremlin might hope to recoup some of the money from higher prices. Indeed, it could enhance income for a while if the weapon was calibrated skilfully. Russia exports roughly 6.5m b/d, supplying the EU with 26pc of its total oil needs and 29pc of its gas.

A cut of just 1m b/d in global supply – and a veiled threat of more to come – would cause a major price spike.

It is unclear whether Saudi Arabia, Kuwait or other Opec producers have enough spare capacity to plug the shortfall. "Russia is behaving in a very erratic way," said James Woolsey, the former director of the CIA. "There is a risk that they might do something like cutting oil to hurt the world's democracies, if they get angry enough."

Mr Woolsey said the rapid move towards electric cars and other sources of power in the US and Europe means Russia's ability to use the oil weapon will soon be a diminishing asset. "Within a decade it will be very hard for Russia to push us around," he told The Daily Telegraph.

It is widely assumed that Russia would cut gas supplies rather than oil as a means of pressuring Europe. It is very hard to find alternative sources of gas. But gas cuts would not hurt the United States. Oil is a better weapon for striking at the broader Western world.

The price is global. The US economy could suffer serious damage from the immediate knock-on effects.

While the Russian state is rich, the corporate sector is heavily reliant on foreign investors. The internal bond market is tiny, with just $60bn worth of ruble issues.

Russian companies raise their funds on the world capital markets. Foreigners own half of the $1 trillion debt. Michael Ganske, Russia expert at Commerzbank, said the country was now facing a liquidity crunch. "Local investors are scared. They can see the foreigners leaving, so now they won't touch anything either. The impact on the capital markets is severe," he said.

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